The Problem With McDonald's' New Premium Menu Options

On the heels of new menu options,
McDonald's saw same-store sales, a key metric in the restaurant industry, rise 2.6% globally and 2.4% in the U.S during May.

While these numbers exceeded analysts' expectations, the updated menu items may not be enough to please shareholders and keep the stock in the $100 per share neighborhood.

The same-store sales figure is fickle at best. For instance, the month of May included an additional Friday, rather than a Tuesday. Jefferies analyst Andy Barish notes the former is a busier time. "That 2.4% growth in the US is more like 1.4% when you compare apples to apples and account for trade day shifts," he adds.

Aside from the growth, McDonald's still struggles to balance both sides of its consumer equation - that is, maintaining growth among its traditionally cheaper foods, while attracting new customers to its premium menu items.

In fact, the higher-end spectrum of McDonald's menu is where the recent innovation stems from. The company replaced its sluggish premium angus burger with a new quarter-pounder in multiple flavors. The McWrap is a healthier, more expensive lunch item, compared to traditional sandwiches. For breakfast, the option to add egg whites to existing sandwiches was rolled out and in beverage a new smoothie flavor, blueberry-pomegranate, was released.

"McDonald's is trying to find a balance between value and premium products in a challenged consumer spending environment in the U.S. and around the world," says Raymond James analyst Bryan Elliott.

While its new menu items are translating into higher sales, it remains to be seen if this innovation is enough to move the stock price.

"The real nirvana for this company is if they can sell premium products but also drive traffic and value. Those two things run incongruously - when you promote value, it's hard to drive a premium product," Barish adds.

And while each of McDonald's core menu categories has seen a revamp, Barish says these changes seem to be more evolutionary rather than revolutionary, which isn't enough to move the needle. He maintains a $91 price target, citing additional headwinds stemming from the strength of the dollar to a lack of same-store sales momentum to drive margins higher.